Thank you very much for your question, Mr. Ste‑Marie.
It's often said that, in retirement, to have a standard of living equivalent to the pre‑retirement standard of living, you have to have a replacement rate of 70% of your pre‑retirement income. Let me give you an example in round figures. If someone earned $100,000 a year before retiring, the goal is to have an income of $70,000 a year at the time of retirement. That is what will allow them to maintain the same standard of living.
In Canada, we have various types of retirement support. First and foremost is the old age security program. These are the foundations, the base. Then, in Quebec, there is the Quebec pension plan; in Canada, there is the Canada pension plan. Then there are private pension plans, as well as individual savings.
With the public plans in Quebec and Canada, we arrive at an income replacement rate of about 40%. We can see how high the stride is to achieve the 70% income replacement rate. Of that 40%, 25% comes from the Canada pension plan or the Quebec pension plan, while about 15% comes from the old age security program. So it represents a fairly low replacement rate for the average wage.
In terms of the method of indexing the old age security program, the problem does not concern those who are currently retired, because indexing to the consumer price index, the CPI, means that they do not lose purchasing power. Indexation is done on a quarterly basis. The problem has more to do with future retirees.
As I was saying, the old age security pension currently replaces about 15% of the average salary. However, since the CPI changes less quickly than wage growth—about 1%—people who earn an average wage and who will retire in 20, 30 or 40 years will have a lower income replacement rate from old age security.
We're just saying you have to look at the CPI, but you also have to look at wage growth. Otherwise, year after year, the old age security pension will play a less important role in the replacement rate of future retirees' retirement income.